Insights ¦ Analysis of household customer debt

Key Take Aways

• Approximately 8.2% of household water customers in England and Wales are in arrears, with an average debt of £822 per customer.
• Total unpaid household water debt exceeds £2 billion, indicating significant sector-level financial exposure.
• One in five water bill payers have struggled with paying their bills over the past year, highlighting ongoing affordability challenges.
• Customers in debt tend to be on repayment plans, which correlate with lower average arrears (£578) versus non-participating customers (£900).
• There are 1.1 million household customers with outstanding debts to previous water providers, accumulating to £591 million.
• Around 3% of customers in arrears are subject to court action, though very little water debt is sold to third parties.
• Water companies are mandated to follow a licence condition and the Paying fair guidelines, emphasising customer support and sensitive debt recovery practices.
• Support mechanisms include social tariffs, capped bills, debt matching schemes, and personalised support — with most companies outlining plans to enhance these offerings.
• Effective debt management by water companies can reduce operational costs, lower bad debt ratios (average 2.8%), and enhance overall sector efficiency.
• Investment in data-driven vulnerability identification and external collaborations with debt advice agencies is increasingly prominent.
• Rising sector bills from April 2025 are expected to amplify affordability pressures, necessitating proactive debt support strategies.
• Continued monitoring, reporting, and stakeholder engagement remain central to improving debt performance and customer care within the water sector.

Key Statistics

• 8.2% of household customers are in arrears as of March 2024.
• Average arrears per customer in debt: £822.
• Total household debt in arrears: over £2 billion.
• Approximately 2.5 million current customers are in arrears.
• 30% of customers in arrears are on a repayment plan.
• Average arrears for debt supporters: £578; non-supporters: £900.
• 1.1 million former customers (final customers) still owe £591 million, averaging £530 each.
• 3% of all customers in arrears face court action.
• Debt sold to third parties accounts for only 3% of final customer debt in the year up to March 2024.
• Sector’s bad debt rate stands at 2.8%, costing an additional £3.30 per household.
• Sector debt management costs were approximately £1.97 per household in 2022.
• Sector bills are forecasted to average around £473 for the 2024–2025 period.

Key Discussion Points

• The persistently high levels of household arrears and debt highlight ongoing affordability issues amid rising sector bills.
• The importance of implementing sensitive and supportive debt recovery practices to avoid exacerbating vulnerabilities.
• The role of proactive support, such as social tariffs and debt matching schemes, in reducing operational costs and bad debt.
• The sector’s need to enhance data sharing and vulnerability detection via external partnerships and innovative approaches.
• Sector-level financial exposure caused by unpaid bills and its indirect impact on all water customers through higher bills.
• The criticality of ensuring compliance with new licence conditions and Paying fair guidelines for both debt recovery and customer support.
• The potential for further bill increases in the sector to worsen affordability challenges, necessitating early intervention.
• The benefits of targeted, personalised support initiatives to prevent debt escalation and foster financial resilience.
• The sector’s comparative performance, demonstrating higher bad debt levels relative to other utilities like energy and telecoms.
• The significance of ongoing monitoring and regulation to encourage best practices in debt management.
• The value of stakeholder engagement, including consumer and debt advice organisations, in shaping effective debt strategy.
• The need for continuous innovation in charging, billing, and data analytics to improve customer outcomes and operational efficiency.

Document Description

This article provides a comprehensive analysis of household customer debt within the water sector in England and Wales, focusing on debt levels, recovery practices, support mechanisms, and sector performance. It discusses sector efforts to improve transparency, highlight vulnerabilities, and promote fair treatment of customers facing financial difficulties. The document importantly sets out the regulatory context, sector challenges, and initiatives aimed at reducing debt burdens, with a forward-looking perspective on managing increasing affordability pressures from sector bill rises aligned with new regulatory guidelines.